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Measured praise from U.S. senators on Irish tax loophole change

By Kevin Drawbaugh

(Reuters) - Two senior U.S. senators on Tuesday lauded Ireland for its decision to close a loophole used by Apple Inc to shelter over $40 billion from taxation, but stressed questions linger about Dublin's role in corporate tax dodging.

"Ireland's promise to reform its tax rules to stop multinationals from using Irish subsidiaries to escape or defer paying taxes anywhere in the world is encouraging," senators Carl Levin and John McCain said in a joint statement.

"Important questions do remain, however," they said.

The Irish government said on Tuesday it planned to shut down a tax arrangement used by Apple, but would leave open a bigger loophole that means the computer giant may not pay more tax.

Edward Kleinbard, a former chief of staff to the U.S. Congress's Joint Committee on Taxation and now a professor at the University of Southern California Gould School of Law, described Ireland's move as "a very small step."

"The specific legislation ... proposed appears on its face to be relevant basically only to Apple," Kleinbard said.

An Apple spokeswoman declined to comment.

Levin, a Democrat from Michigan, chairs a Senate panel that in recent years has run the U.S. Congress's hardest-hitting tax-avoidance investigations. McCain, a former presidential candidate from Arizona, is the panel's top Republican.

High-tech titan Apple came under fire in May from their Senate Subcommittee on Permanent Investigations, which said that the company had kept billions of dollars in profits in Irish subsidiaries and paid little or no taxes to any government.

Levin urged closing loopholes like those he said Apple used to avoid $9 billion in U.S. taxes in 2012.

The subcommittee said Apple used Ireland as a base for a web of offshore holding companies and negotiated a deal with the Irish government for a tax rate of less than 2 percent. The top U.S. corporate income tax rate is 35 percent.

At a May 21 Senate hearing, Apple Chief Executive Tim Cook made no apology for saving billions of dollars in U.S. taxes through Irish subsidiaries. He told lawmakers his company backs corporate tax reform, though it may end up paying more.

With Washington paralyzed by political gridlock over spending and tax issues, no overhaul of the U.S. tax code has gained momentum and analysts say it is unlikely soon. The code has not been comprehensively cleaned up in 27 years.

Irish Finance Minister Michael Noonan said on Tuesday that he planned to make it illegal for a company registered in Ireland to have no tax domicile anywhere.

A spokesman for the Irish Department of Finance declined to explain the change but denied it was due to U.S. pressure.

He added that companies could still nominate any country they liked as their tax residence, including zero tax jurisdictions such as Bermuda.

U.S. high-tech groups Google Inc and Microsoft Corp have cut their overseas tax rates to single digits by establishing Dublin-registered units, which they have designated as tax resident in Bermuda. Google and Microsoft say they follow tax rules in every country where they operate. Apple has said it has paid all the tax it should have.

(Additional reporting by Patrick Temple-West and Tom Bergin in London; Editing by Howard Goller and Bob Burgdorfer)

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